December Existing Home Sales

Existing Home Sales decreased by 2.8 percent in December to a 5,490,000 unit annual rate.

Existing home sales eased by 2.8 percent in December, ending the year in the same pattern that they started the year; zig zag with a gradual upward trend. Sales declined moderately in the Northeast, the Midwest and the West. The South was flat for the month. The condo market gave up the most ground, with existing condo sales down 10.3 percent in December. Existing single-family sales dipped by 1.8 percent. The months’ supply of existing homes for sale dipped to 3.6 months’ worth, indicating tight conditions for many regional markets. The median sales price of an existing single-family home was up 3.8 percent over the 12 months ending in December. Existing condo prices were up 5.5 percent over the year. We are seeing a disconnect between the single-family market and the condo market in some areas. Condo supply increased rapidly last year and absorption slowed. We expect to see cooler conditions for many condo markets through the first half of this year as over-supply weighs on prices. Still, fundamental demand looks good and oversupplied markets will gradually equilibrate. With stronger economic growth and warming inflation, we expect the Federal Reserve to increase the fed funds rate range about three times this year, putting upward pressure on mortgage interest rates. With higher rates and climbing prices, affordability will ease through 2017, but from a still-high level. So we expect to see some segments of the housing market feel the headwind from rising interest rates. But solid job and income growth and rising confidence will support ongoing demand.

Regional manufacturing surveys continue to look good. Last week we reported on both the Philadelphia Fed’s and the New York Fed’s manufacturing surveys. Today, the Federal Reserve Bank of Richmond showed a similar positive reading for January, showing that manufacturing activity expanded in the region from Maryland through South Carolina.

Market Reaction: U.S. equity markets opened with gains. The 10-year Treasury bond yield is up to 2.46 percent. NYMEX crude oil is up to $53.34/barrel. Natural gas futures are up to $3.33/mmbtu.